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Saturday, March 31, 2012

The Sarcasm Report v.155

There are objections to rounding, which one economist estimated could cost U.S. consumers as much as $1.5 billion over five years.

By all means, let's base our decisions on the opinions of *one* economist. That always works out awesome for us. Take Ben "There Is No Housing Bubble to Go Bust" Bernanke, lol.

And let's say it is true. One can only imagine the pain that was inflicted when the penny was once worth 20x what it is now. There must not have been any prosperity at all, due to all that rounding error.

Assuming it is true, then I wonder if there is something that could be done to compensate for this rounding effect. What if we were to tax corporations a tiny, tiny bit more and tax consumers a tiny, tiny bit less? No!! Taxing corporations more during a period ofrecord corporate profits? That's just crazy talk!

Also, cutting out the penny may just put more reliance on the nickel—which is even more expensive to produce. In the U.S. loses 1.4¢ on each penny it makes and 6.2¢ on each nickel, according to Coin Update, an industry news source.

The U.S. loses $1.41 on each dollar's worth of pennies it makes. It loses $1.24 on each dollar's worth of nickels it makes. We must therefore keep the penny because nickels are just too darned expensive.

President Obama’s 2013 budget proposal includes plans to let the U.S. Mint change the composition of coins (page 173) so it can use less-expensive metals. It has changed materials before; pennies now are almost entirely made from zinc, not copper.

If only there was some way that we could replace what's in the nickel with what's in the penny and then reduce the size of the nickel to be the same size as the penny. I know it might sound hard to believe but there's a remote possibility that a dollar's worth of nickels would then be 80% cheaper to make than a dollar's worth of pennies. Could it work? Where's a rocket scientist when we need one!

It took a Canadian budget battle to kill that country’s 1¢ coin, but even in these economic times, don’t hold your breath for Congress to take down the penny soon.

This is what makes America great. We are masters of delaying the inevitable (can kicking). The penny has lost 95% of its purchasing power in the last century. Should this trend continue then we can expect it to lose 95% of its remaining purchasing power in the next century. So what does this mean? It would take about two thousand pennies to buy a candy bar. It gets even better. Those two thousand pennies could easily cost the equivalent of 50 candy bars to create. Prosperity? Here we come!

And lastly, if it was our intention to keep Abe Lincoln on the penny well into the distant future as an honor and symbol of our great nation, then perhaps we should have made sure the penny kept its value. Instead, we've debased his face.

Bernanke defines stable prices as 2% inflation. Let's say that productivity increases 2% a year. To force 2% inflation, the money supply has to increase by 4% all things being equal. It takes hard, deliberate work to debase the currency when the rest of society is working to make things cheaper.

shows how WW I was a major inflationary event. I haven't studied this at all but my casual opinion is that the diversion of the US economy from consumer to war spending (and the collapse of imports for that matter) reduced the amount of goods in trade while at the same time flooding the country with Europe's hard money from war production wages.

Inflation would be baked into the cake with this scenario.

We've gotten used to inflation now, but as late as 1970 it was an spectre to be fought. The general outrage at the early 1970's inflation events seem almost charming in retrospect:

I delight in explaining at length to my 7 y.o. how the nickel is the last coin not to be debauched...

"The ten's and twenty's were the first to go, of course they were solid gold. FDR did that in the 30's. Next were the dimes, quarters, half-dollars, and dollars. The year was 1964 I can't remember if it was LBJ or Kennedy (I can, but it tells better this way). Doesn't matter they were both Democrats. The lowly penny came next in '82.5. It's only a thin foil of copper over a near worthless zinc slug. All that's left son is the nickel. It hasn't been debauched. Well except for those couple of years in the Big War. They needed the nickel for bullets instead. But they'll be coming for the nickel soon. It's the most expensive coin to produce. Start saving them now. Don't ever spend a nickel, son."

It's really nice when he brings it up when we're out in public, "Dad, have they debauched the nickel yet?"

His teacher unfortunately is oblivious. Actually complained about his always bringing it up. That and the talking about Sirhan Sirhan shooting Robert Kennedy in Chicago? I know, I know. If she was doing her job... freakin' govt schools.

Disclaimer

I am not a financial advisor. I am not offering investment advice. Although I have attempted to provide accurate information, that's all it is, an attempt. Please do not trust the opinions, numbers, and/or charts of a random anonymous blogger on the Internet. Make your own opinions. Make your own charts. Do your own due diligence. Thank you.